Emerging market currencies may have received a boost against the dollar last week after the European Central Bank announced its programme of quantitative easing, with those of South Africa, Russia, Turkey and Brazil all strengthened by the news. But the more important stories for investors over the mid term are the effects of cheaper oil and the state of countries’ current accounts.
On the face of it, whether a country exports oil seems to matter more to investors right now than the state of its current account. Read more
Russia’s economy is heading for a deep recession this year. Brazil is stagnating and China’s dynamism is dissipating, helping to depress the prices of commodities that many developing countries produce. But in spite of such afflictions, analysts caution against thinking that a multi-year consumer bonanza in emerging markets (EM) is running out of steam.
The “biggest growth opportunity in the history of capitalism”, as McKinsey called EM consumer spending in a 2012 report, may suffer setbacks in some key markets this year, but overall the narrative is set to flourish as disinflation triggers interest rate cuts and low oil prices put more money into EM consumers’ pockets, analysts said. Read more
** FT News **
* Yahoo to spin off $40bn Alibaba stake | Marissa Mayer says split in fourth quarter of 2015 will be tax free
* Greeks rebuff EU call for more Russia sanctions | Fears growing that new ruling coalition in Athens is seeking closer ties with Moscow Read more
A year ago when the Olympic torch arrived in Sochi, many observers were warning that interest in the Russian Black Sea resort would fizzle out once the 2014 winter games were over. But that was before western sanctions and falling oil prices began weighing on the Russian economy and sending the rouble into a nosedive.
Russians no longer able to afford foreign ski holidays and chalets are now flocking to the slopes of Sochi and investing their depreciating rubles in mountain side homes built for the Olympics. For the first time Sochi has been included in the annual ranking of the world’s top twenty ski resorts by price growth for prime residences, compiled by Knight Frank, the global real estate consultancy. Read more
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Maruti Suzuki led a two-track recovery in India’s car industry last year, dragging up overall sales while local competitors such as Tata Motors floundered. But new figures out on Tuesday have disappointed analysts in the festive period.
The 32 year-old brand, with a reputation for churning out reliable and affordable cars, posted net profits of Rs8.02bn ($131m) in the quarter ended December, up 18 per cent year-on-year. That’s well below an average forecast for profits of Rs9.06bn in a poll by Thomson Reuters. Read more
** FT News **
* China seeks end to gold medal fixation | ‘Blind pursuit’ of success condemned as sports administrator scraps rewards for victory
* EU threatens Russia with more sanctions | Call comes as violence in eastern Ukraine escalates Read more
By Peter Leger, Coronation Fund Managers
So you thought a six-month break on a desert island looked appealing and spent long hours in silent meditation, reflecting on self-actualisation, harmony and humanity’s ceaseless race to consume the planet. Now you’ve just made the return journey to find that the oil price collapsed from over $110/barrel to less than $50. Peak theorists having turned into piqued theorists. You didn’t see that coming. And, frankly, neither did we. Nor did we expect to see the Swiss franc jump 28 per cent in a single day – as it did recently.
The lesson being that extreme volatility has to be an assumption when building portfolios, and doubly so when investing in frontier markets, where volatility is often amplified. Read more
It has not exactly been the January that some investors were hoping for in Argentina.
The notorious “Rufo” clause (for rights upon future offers) in restructured debt contracts appears to have been the red herring that many had warned it was when the government cited it as an excuse for not cutting a deal with the holdouts last year, triggering Argentina’s default in July. Read more
** FT News **
* Russia downgraded to ‘junk’ by S&P | Shift underscores dramatic economic deterioration
* Kurds claim victory over Isis in Kobani | Forces claim to have wrested back control of Syrian border city after four-month battle Read more
Pemex, the Mexican state oil company, is being forced to sharpen up its act.
Not only are costs under pressure, so is its reputation. Read more
Just what are we to read into this? Mainstream and social media in India are abuzz with the revelation that, when Prime Minister Narendra Modi met US President Barack Obama on Sunday, the pinstripes of his suit were not pinstripes at all but his full name, Narendra Damodardas Modi, spelt out in block capitals over and over again. Read more
By Kavaljit Singh of Madhyam
It’s official: India and the US will resume negotiations on a high-standard bilateral investment treaty (BIT). In a joint statement on Sunday by Prime Minister Narendra Modi and President Barack Obama, the leaders affirmed their “shared commitment to facilitating increased bilateral investment flows and fostering an open and predictable climate for investment.”
Since 2008, the two countries have been engaged in sporadic discussions to arrive at such a treaty. In the coming days, negotiations will begin on its wording, based on each country’s revised model treaty texts. Read more
** FT News **
* Syriza ‘agrees’ deal to form coalition | Leader of rightwing anti-bailout party says new government likely by Monday
* Equities find poise after Greece vote | Euro bounces off 11-year low but Greek bank stocks hit hard Read more
PIB = GDP, IPCA = CPI. Black lines = 2015, red lines = 2016. Source: central bank
The task facing Brazil’s new economics team came further into focus on Monday morning with inflation expectations rising and the consensus on economic growth falling, both for the fourth consecutive week. The central bank’s latest weekly survey of market economists has GDP rising just 0.13 per cent this year, down from the 0.55 per cent expected four weeks ago, while consumer price inflation is seen ending the year at 6.99 per cent, up from 6.53 per cent four weeks ago and some way beyond the upper limit in the government’s target range of 4.5 per cent plus or minus two percentage points. Read more
January is normally a quiet month for dealmaking in Brazil as executives collapse on a beach somewhere for their long summer holiday between Christmas and Carnival. However, that could all change this year as bankers push ahead with the next stage of the telecoms market’s consolidation.
Late on Thursday, the Brazilian mobile phone operator Oi finally got approval from its merger partner Portugal Telecom to sell the Portuguese company’s assets to France’s Altice. (Altice agreed to the €7.4bn acquisition in November but minority shareholders had threatened to sabotage the deal.) Read more
Emerging Asia is set to be the world’s fastest-growing region again in 2015, skirting the contagion from Russia’s crisis and riding the fall-out from weak commodity prices, according to Fitch, the credit rating agency. Nevertheless, structural frailties stalk seven out of 10 countries in the region, with surging debt levels a particular concern, the agency said.
The region, excluding China, is expected to expand by 5.9 per cent in 2015 and 6.1 per cent in 2016 – compared to an average for global emerging markets of 4.1 per cent and 4.5 per cent respectively, Fitch said in a report. These forecasts compare with the International Monetary Fund’s (IMF) estimates that developing economies would this year grow at 4.3 per cent, accelerating to 4.7 per cent in 2016. Read more
By Tony Elumelu of Heirs Holdings
This week, world leaders from the public and private sectors, civil society and academia are gathered at Davos to discuss a “new global context” – the theme of the World Economic Forum’s 2015 annual meeting. In this new context, the WEF fears that profound transformations – social, economic, political and technological – are hastening the end of “economic integration and international partnership”. Read more
** FT News **
* Euro falls to fresh 11-year lows | European stocks also open higher a day after the ECB unleashes QE
* Brazil minister warns of austerity | Joaquim Levy says cuts need to be made to get government finances in order Read more
By Timothy Ash of Standard Bank
While we all enjoy the ECB-inspired feeding frenzy across all risk assets this week it might be well to remember why Mario Draghi opted for yet another extraordinary measure in line with the message that he will do “whatever it takes”. Indeed, it is perhaps a reflection of the immense challenges facing Europe that he is betting the bank and, especially, other peoples’ (Germans’) money. Europe is in the worst state it has been in at any point in the entire post WWII era. Read more
** FT News **
* King Abdullah dies and Salman ascends | Continuity assured as Crown Prince succeeds brother to the throne
* Oil drop ‘disastrous’ for anti-Isis fight | West offers military aid at UK talks to help Iraq combat jihadis and budget crisis Read more